Investment Shocks and Macroeconomic Co-Movement

20 Pages Posted: 22 Apr 2013

See all articles by Francesco Furlanetto

Francesco Furlanetto

Norges Bank

Gisle James James Natvik

BI Norwegian Business School - Department of Economics

Martin Seneca

Bank of England

Date Written: August 31, 2011

Abstract

Recent studies fi…nd that shocks to the marginal efficiency of investment are a main driver of business cycles. Yet, they struggle to explain why consumption co-moves with real variables such as investment and output, which is a typical feature of an empirically recognizable business cycle. In this paper we show that within a conventional business cycle model, rule-of-thumb consumption provides a straightforward explanation of macroeconomic co-movement after a shock to the marginal efficiency of investment.

Keywords: Investment shocks, consumption, rule-of-thumb consumers, nominal rigidities, co-movement

JEL Classification: E32

Suggested Citation

Furlanetto, Francesco and Natvik, Gisle James James and Seneca, Martin, Investment Shocks and Macroeconomic Co-Movement (August 31, 2011). Available at SSRN: https://ssrn.com/abstract=2254514 or http://dx.doi.org/10.2139/ssrn.2254514

Francesco Furlanetto (Contact Author)

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Gisle James James Natvik

BI Norwegian Business School - Department of Economics ( email )

Nydalsveien 37
Oslo, 0484
Norway

Martin Seneca

Bank of England

Threadneedle Street
London, EC2R 8AH
United Kingdom

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